2016 (6) TMI 253 - AT - Income Tax

High Court clarifies TDS non-deduction rules under section 40(a)(ia) in Merilyn Shipping case

The High Court held that the Special Bench's decision in the case of Merilyn Shipping & Transports did not lay down the correct law regarding ... TDS u/s.194C - Disallowance u/s.40(a)(ia) - Held that:- CIT(A) while deciding the issue in favour of assessee had relied on the decision of Special Bench in the case of Merilyn Shipping & Transports(supra) and held that if any amount is payable as on end of the relevant previous year, no deduction u/s.40(a)(ia) can be made. We further find that the ld.CIT(A) has not decide the issue on merits. It is also a fact that the decision of the Special Bench in the case of Merilyn Shipping & Transports (2012 (4) TMI 290 - ITAT VISAKHAPATNAM) that was relied upon by the ld.CIT(A) has been overruled by the Hon’ble Jurisdictional High Court in the case of CIT vs Sikhandarkhan N. Tunvar & Bros. reported at (2013 (5) TMI 457 - GUJARAT HIGH COURT), wherein the Hon’ble Jurisdictional High Court has held that the decision of the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports does not laid down correct law. It has further held that section 40(a)(ia) of the Act would cover not only amounts which are payable as on 31st March of a particular year, but also which are payable at any time during the year. Before us, the ld. AR has not pointed out any contrary binding decision in his support. We further find that CIT(A) has not decided the issue on merits. In view of the aforesaid facts, we are of the view that the issue needs to be re-examined at the end of the ld.CIT(A) in the light of the judgment of the Hon’ble Jurisdictional High Court and in accordance with law and, accordingly, remit the issue back to the file of ld.CIT(A) to decide it afresh - Decided in favour of revenue for statistical purposes Addition an amount of notional interest income - Held that:- The issue in the present case is with reference to disallowance of interest. We find that CIT(A) after considering the submissions of assessee has granted substantial relief to the assessee and has confirmed the disallowance of interest only to the extent of ₹ 12,354/- as against the disallowance of ₹ 70,830/- made by AO. Before us, assessee has not brought any material to controvert the findings of CIT(A) and, therefore, we find no reason to interfere with the order of CIT(A). - Decided against revenue Issues:1. Disallowance under section 40(a)(ia) of the Act for non-deduction of TDS on labor and carting charges.2. Disallowance of notional interest income on interest-free advances.Analysis:1. Disallowance under section 40(a)(ia) of the Act:The appeal pertains to the disallowance made by the Assessing Officer (AO) under section 40(a)(ia) of the Act for non-deduction of TDS on labor and carting charges. The Commissioner of Income Tax (Appeals) (CIT(A)) granted partial relief to the assessee, which was further appealed by the Revenue. The CIT(A) had relied on the decision of a Special Bench in the case of Merilyn Shipping & Transports to rule in favor of the assessee. However, the High Court held that the Special Bench's decision did not lay down the correct law. The Tribunal remitted the issue back to the CIT(A) for re-examination in light of the High Court's judgment and directed both parties to be given reasonable opportunities for hearing. The Tribunal found that the issue was not decided on merits by the CIT(A) and needed a fresh examination.2. Disallowance of notional interest income:The AO disallowed a notional interest income on interest-free advances made by the assessee. The CIT(A) confirmed a partial disallowance of interest and directed the deletion of the remaining amount. The Tribunal noted that the CIT(A) had granted substantial relief to the assessee and had considered the submissions made. The Tribunal found no reason to interfere with the CIT(A)'s order as the assessee did not provide any material to challenge the findings. Therefore, the Tribunal dismissed the Revenue's appeal on this ground.In conclusion, the Tribunal partly allowed the Revenue's appeal for statistical purposes, remitting the issue of disallowance under section 40(a)(ia) back to the CIT(A) for a fresh examination and dismissing the appeal regarding the disallowance of notional interest income.